US-China Cold War: How Did We Even Get Here?

Article By : Junko Yoshida

The history of U.S.-China relations has been laced with a series of often gratuitous tit-for-tat trade sanctions. How did we even get here?

How did we even get here? The erratic sequence of diminishing tensions and escalations in the U.S. vs. China conflict can make one’s head spin.

The history of U.S.-China relations in the past three and half years has been laced with a series of often gratuitous tit-for-tat trade sanctions. Despite all the ink spent on this spat, it has accomplished little. Worse, it has marked a downward spiral in diplomacy between the world’s two largest economies, escalating what was initially billed as “economic conflicts” triggered by trade imbalances into a U.S. China technology cold war.

Throw the outbreak of Covid-19 into the mix. Distrust between the two nations has grown further, which also opened the door for the U.S. semiconductor industry to discuss “a strategic opportunity” for domestic chip production, research, national security and supply chain resilience.

It remains to be seen whether U.S. chip vendors — most of which had already chosen to abandon producing their own chips — might reverse course and bring manufacturing back to the United States. This remains true despite the SIA’s enthusiastic endorsement of Congressional action to establish a federal grant program.

And then U.S. manufacturing flag-bearer Intel just indicated it might someday opt to have a foundry build its most advanced products; who knows if or how that changes the discussion about U.S. IC manufacturing.

All this commotions might be deemed “just politics.” There are optimists convinced that the relationship will get back to “normal” after November’s US presidential election. Most likely they are wrong.

The steps taken by the U.S. and Chinese governments thus far have already resulted in tangible consequences for the global tech community.

5G impact: The U.S. government’s global campaign against Huawei pressured many nations around the world to drop adoption of Huawei’s network communication equipment in the upcoming 5G cellular network buildout, even at the expense of delays in 5G rollout.

TSMC’s loss of sales to HiSilicon / potential inventory glut: The U.S. Department of Commerce’s refusal to grant TSMC a license to sell chips to Huawei’s chip division HiSilicon, for example, will have a real impact on TSMC. HiSilicon accounts for 14 percent of TSMC’s overall revenue. Many analyst see that stockpiling by Huawei and its competitors will inevitably result in excess inventory in the supply chain.

Scrutiny on M&A’s and business operations: Chinese antitrust regulators have already proven their ability to change the M&A landscape for Western technology companies. China’s decision to let the clock run out on approval of the Qualcomm-NXP deal has literally killed what could have been a bonanza for Qualcomm.

Meanwhile, companies backed by substantial investment from funds tied to the Chinese government face extra scrutiny from governments where their headquarters are located. Imagination Technologies, for example, had to drop a plan to add four Chinese investors to its executive board because it touched a raw nerve in the U.K. The result was a full-blown government inquiry.

The engineering community’s psyche
The current U.S. administration’s political rhetoric has already had an effect on the engineering community’s mindset. About a year ago, the IEEE imposed a ban on using Huawei scientists for journal reviews, due to the U.S. government sanctions. Although IEEE lifted its ban a few days later, this was a warning of how the interpretation of government actions can be easily manipulated.

Meanwhile, U.S. policy has triggered a growing number of cases in which Chinese engineers with green cards struggle to get back to the United States without having their laptops, smartphones and notebooks scrutinized at the border.

Some Chinese companies — especially those working on AI chips — bluntly told us that speaking to the Western press only invites trouble. “Now is not the time,” they often say, “to draw unnecessary attention from the U.S. government.”

One thing is for sure. Chinese engineers are concerned that US technology export and visa restrictions are stifling the knowledge exchange that’s critical to innovation in the highly globalized AI research community.

What’s next?
As Dieter Ernst, economist and senior fellow at the Centre for International Governance Innovation (Waterloo, Canada) and the East-West Center (Honolulu), told us in an interview, “There is no doubt that Commerce and USTR (US Trade Representative) should fight against unfair practices in IPR, trade secrets, and government procurement, wherever they occur, including in China. But most important, both the US government and the private sector need to join forces and develop and implement a national strategy to upgrade the country’s innovation system in order to cope with the challenge of China’s innovation policy from a position of strength.”

He concluded: “In short, technology warfare based on crude techno-nationalism is threatening to destroy AI’s global knowledge-sharing culture. This is true both for the ‘America First’ doctrine and for China’s attempts to claim sovereignty over its cyberspace through the Great Firewall.”


Timeline

2017

April 7, 2017: First Trump, Xi  summit in Florida: The leaders agree on a 100-day plan for trade talks

July 19, 2017: The US-China 100-day talks break down:The two sides fail to agree on new steps to reduce the U.S. deficit with China after the 100 days of talks.

Aug. 14, 2017: Trump orders probe of China’s intellectual property practices: Trump orders a “Section 301” probe into alleged Chinese intellectual property theft.

2018

Jan. 9, 2018: AT&T cancels smartphone deal with Huawei: AT&T backs out of a dealwith Huawei to sell the company’s new flagship smartphone in the U.S. on the day before Huawei was set to announce the partnership at CES 2018. At CES, Huawei CEO Richard Yu addresses the loss of AT&T support.

Feb. 13, 2018: US intelligence agencies advise against Huawei, ZTE smartphones: The directors of the CIA, FBI, NSA and several other intelligence agencies told the Senate Intelligence Committee that they would not advise Americans to use products or services from Huawei and fellow Chinese telecom company ZTE.

April 3, 2018: Trump unveils plans for 25 percent tariffs on about $50 billion of Chinese imports

April 4, 2018: China strikes back with plans for retaliatory tariffs on $50 billion of U.S. imports.

June 15, 2018: USTR Issues Tariffs on Chinese Products in Response to Unfair Trade Practices. The United States says that 25 percent levies on $34 billion of Chinese imports will go into effect July 6, and announces 25 percent tariffs on an additional $16 billion of goods. China responds with tariffs on $34 billion of U.S. goods.

July 10, 2018: U.S. Unveils Additional Tariffs on $200 billion more in Chinese imports

July 26, 2018: China Kills Qualcomm-NXP Deal

Aug. 1, 2018: Trump tariff increase: July tariffs to increase to 25%

Aug. 7, 2018: U.S. releases a list of $16 billion of Chinese goods to be taxed by 25 percent. China retaliates with 25 percent duties on $16 billion of U.S. goods.

Sept. 24, 2018: The 10-percent tariffs kick in on $200 billion of Chinese imports. The administration says the rate will increase to 25 percent on Jan. 1, 2019. China taxes $60 billion of U.S. goods.

Dec. 1, 2018, Washington and Beijing agree on a 90-day halt to new tariffs. Trump and Xi met. During the working dinner, Trump agrees to postpone the Jan. 1 increase on $200 billion of Chinese goods; the White House says China will buy a “very substantial” amount of U.S. products. President Xi declares he is open to approving the previously unapproved Qualcomm-NXP deal should it again be presented to him.

Dec. 6, 2018: Responding to U.S. authorities, Huawei CFO Meng Wanzhou is arrested in Vancouver, B.C. 

Dec. 25, 2018: Huawei’s Annual Smartphone Shipments Exceed 200 Million Units

2019

January 28, 2019: Huawei Charged with Multiple Crimes: Huawei has been charged with bank fraud, wire fraud, conspiracy to defraud the United States, and theft of trade secrets, among other crimes, in indictments unsealed by United States Attorneys Offices in the Eastern District of New York and the Western District of Washington. Also, FBI Director Christopher Wray made remarks on the charges against Huawei during a press conference at the Department of Justice in Washington, D.C.

May 16, 2019: The U.S. bans Huawei from buying parts and components from U.S. companies: Huawei and sixty-eight of its non-U.S. affiliates were added to the Entity List effective May 16, 2019. Their addition to the Entity List imposed a licensing requirement under the Export Administration Regulations (EAR) regarding the export, reexport, or transfer (in-country) of any item subject to the EAR to any of these sixty-nine listed Huawei entities.

June 29, 2019: Trump says China Trade Talks Back on Track: At the G20 meeting in Osaka, Trump agrees to no new tariffs and to ease restrictions on Huawei. Xi agrees to unspecified new purchases of U.S. farm products.

July 9, 2019: US will allow licensed sales to Huawei, but it remains blacklisted: U.S. companies will be able to sell equipment to Huawei, Commerce Secretary Wilbur Ross confirmed, but only after they get licenses and when there’s no threat to national security. “Huawei itself remains on the Entity List, and the announcement does not change the scope of items requiring licenses from the Commerce Department, nor the presumption of denial,” Ross said at a Washington event.

July 23, 2019: Huawei lays off more than 600 US workers due to blacklisting.

Oct. 7, 2019: The Commerce Department places 28 Chinese companies on its “entity list”: The U.S. blacklists 28 Chinese organizations for their alleged involvement in abuses against ethnic Uighurs in China’s Xinjiang province. Entity List bars those organizations from buying products from US companies without approval from Washington. The 28 targets include both government agencies and technology companies specializing in surveillance equipment. Of 28, eight commercial entities are: Dahua Technology; Hikvision; IFLYTEK; Megvii Technology; Sense Time, Xiamen Meiya Pico Information Co. Ltd.; Yitu Technologies; and Yixin Science and Technology Co. Ltd.

Oct. 11, 2019: After two days of high-level talks, Trump announces a “Phase 1” dealthat includes suspension of planned tariffs and a Chinese pledge to buy more farm goods, but few details.

Nov. 22, 2019: The U.S. Federal Communications Commission votes to block Huawei from billions of dollars in federal aid. The Federal Communications Commission has moved to block United States telecoms from using critical federal funds to buy Huawei equipment. Under the new FCC rule, wireless carriers are prohibited from using money from the Universal Service Fund (USF) to make purchases from companies deemed national security threats. The fund provides billions of dollars in subsidies for companies to offer wireless service around the country. Through the vote, the FCC has initially named two Chinese telecommunications companies as national security threats: Huawei and ZTE.

Dec. 3, 2019: Huawei cuts US components out of Mate 30 in wake of Trump’s ban. The Wall Street Journal reports Huawei’s Mate 30 phone is now being made without any US-sourced components at all.

December 16, 2019:  The House Passes the bipartisan Secure and Trusted Communications Networks Act: The House legislation bars the government from buying telecommunications equipment from companies deemed to be national security threats, such as Chinese telecom giant Huawei. Enacted in March, 2020.

December 31, 2019: First cluster of Covid-19 infections reported in Wuhan, Hubei Province, China.

2020

Jan., 2020: Republican-sponsored bill seeks to block intelligence sharing with countries using Huawei for 5G

Jan. 28, 2020: U.K. Allows Huawei Gear, But Places a Cap on Traffic, Equipment: The U.K. government concluded its telecoms supply chain review and issued guidance on how to treat ‘high-risk vendors’  such as Huawei as part of a new set of telecoms security requirements. It said these vendors should be excluded from sensitive ‘core’ parts of 5G and gigabit-capable networks. Further, the U.K. government is placing a 35 percent hard cap on the network traffic volume passing through high-risk vendors’ equipment. Similarly, base station sites served by equipment from a high-risk vendor should be limited to 35 percent at most.

Feb. 27, 2020:  U.S. Senate unanimously approves bill to ban purchase of Huawei equipment with federal funds

May 13, 2020: Trump extends U.S. telecom supply chain order aimed at Huawei, ZTE

May 15, 2020: Commerce Department tightens export controls on Huawei, and extends Temporary General License for another 90 days. Commerce Department announces extension of the terms of the existing “Temporary General License” authorizations for Huawei Technologies Co. Ltd. and its non-U.S. affiliates (Huawei) on the Entity List for 90 days.  The terms and duration of any future general licenses will be announced prior to the expiration of this 90-day time period.

May 15, 2020: TSMC announces an intention to Build 5-nm Fab in Arizona

May 22, 2020: Commerce Department Adds Nine Chinese Companies to Entities List: The listing identifies China’s Ministry of Public Security’s Institute of Forensic Science and Aksu Huafu Textiles Co. for engaging in human rights violations and abuses in the XUAR. An additional seven commercial entities will be to the list for enabling China’s high-technology surveillance in the XUAR: CloudWalk Technology; FiberHome Technologies Group and the subsidiary Nanjing FiberHome Starrysky Communication Development; NetPosa and the subsidiary SenseNets; Intellifusion; and IS’Vision.

May 27, 2020: Huawei CFO Meng loses key court fight against extradition to United States

June 10, 2020:  Introduction of CHIPS for America Act:  The bipartisan bill, CHIPS for America Act — as in “Creating Helpful Incentives to Produce Semiconductors — proposes to revive domestic chip-making, fund R&D, and secure technology supply chains.

July 14, 2020: UK follows US in banning Huawei from its 5G network:  The UK Government, in a massive reversal, forces mobile network operators to strip out any 5G equipment supplied by Huawei that they had already installed. The operators’ deadline to conform is 2027. The announcement also mandates that no new Huawei kit for 5G deployment can be purchased by the end of this year, and confirmed that the existing ban on Huawei gear in the sensitive core part of network remains in place.

July 15, 2020:  Trump administration hits Huawei workers with US visa restrictions

July 21, 2020: U.S. accuses Chinese nationals of hacking spree for Covid-19 data, military secrets. House, Senate approved versions of the National Defense Authorization Act that includes provisions contained in CHIPS Act and similar House legislation.

July 23, 2020: The US-China tech cold war reaches Houston. U.S. abruptly orders closure of Chinese consulate in Houston.

July 24, 2020: China orders U.S. to close Chengdu consulate.

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